Inception of FTX: A Promising Beginning
In MAY, 2019 Sam Bankman-Fried, a former Wall Street trader, and Gary Wang, a former Google employee, teamed up to create FTX, the company that owns and runs the cryptocurrency exchange FTX.COM.
FTX’s Golden Year: Achievements and Milestones in 2021
After starting the journey, 2021 is the golden year for the FTX, it raised $900 million in funding, giving the exchange a value of $18 billion. They also partnered with the Mercedes Formula 1 team. Later, they secured another round of funding at a valuation of $25 billion, with investors like Temasek and Tiger Global contributing.
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Signs of Trouble: Challenges and Controversies Surface
The scenario started to change when CoinDesk published a leaked document suggesting that Alameda Research, Sam Bankman-Friend’s crypto trading firm, relied heavily on FTX’s native token, FTT. However, Reuters couldn’t confirm the accuracy of the report.
Crisis Escalates: Regulatory Scrutiny and Leadership Changes
Binance CEO Changpeng Zhao announced plans to sell off FTX holdings due to undisclosed concerns. However, FTX founder Sam Bankman-Fried reassured that FTX was stable. Binance initially considered buying FTX but later dropped the idea. FTX then halted new client sign-ups and withdrawals indefinitely. Bankman-Fried informed staff that he was urgently seeking funds and discussed options with Justin Sun, the founder of Tron cryptocurrency.
FTX’s Downfall: The Collapse and its Aftermath
On November 10, 2022, FTX Digital Markets’ assets were frozen by the Bahamas’ securities regulator, and the California Department of Financial Protection and Innovation launched an investigation into FTX.
Sam Bankman-Fried apologized for a liquidity crisis and acknowledged on Twitter (now called X) that FTX’s non-U.S. exchange didn’t have enough reserves to meet customer demands. He stepped down as FTX CEO on November 11, with John J. Ray III appointed as his replacement. Ray previously oversaw Enron during bankruptcy proceedings due to an accounting scandal.
FTX, once the third-largest cryptocurrency exchange, collapsed in 2022, causing significant harm to the crypto industry. The collapse of FTX caused people to lose trust in it and affected other crypto services linked to it. Now, investors, courts, and regulators are trying to fix the situation, get back lost money, and prevent similar problems from happening again.
Legal Consequences: Arrests, Charges, and Investigations
FTX, along with approximately 130 affiliated companies, filed for Chapter 11 bankruptcy protection on the same day. The filings revealed that FTX had assets and liabilities estimated to be between $10 billion and $50 billion.
In December 2022, Sam Bankman-Fried, along with other FTX executives, was extradited from The Bahamas to the U.S. They were arrested and charged with fraud and money laundering. Prosecutors and regulators accused them of actions that increased the risk of FTX going bankrupt. The U.S. Department of Justice (DOJ) issued criminal indictments, while the U.S. Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) filed civil lawsuits. Allegations included embezzlement of customer deposits, deception of customers and investors through false accounting, and misappropriation of funds for personal expenses, charity, political contributions, and other ventures.
“Once Binance walked away from buying FTX after only 24 hours of due diligence the writing was on the wall for FTX,” said Antoni Trenchev, co-founder of crypto lender Nexo.
Release on Bail: Sam Bankman-Fried’s Record-Breaking Bond
On December 22, a federal judge approved the release of Sam Bankman-Fried from custody. His lawyers and federal prosecutors reached an agreement for a $250 million bond, marking the highest bail amount ever recorded in the U.S.
Lessons Learned: Reflecting on FTX’s Rise and Fall
The story of FTX’s rise and fall highlights the dangers in the cryptocurrency world. While the potential for big gains and cutting-edge technology can be tempting, investors need to be careful and do their research. Crypto exchanges need to be regulated, transparent, and accountable to ensure their stability and trustworthiness.
Now that the chaos surrounding FTX has calmed down, the crypto community needs to learn from the experience. We need to work together to make the industry stronger and more reliable. Only then can cryptocurrencies fulfill their potential to change the way we think about money and finance, giving power back to the people and transforming the global economy.
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